Parsad

Another article on it: http://www.bloomberg.com/news/2012-05-21/chinese-iron-ore-buyers-defer-imports-cargoes-mirae-says.html Hard to tell at this time if it is simply oversupply from a slowdown, or something more significant. If it is something more significant, it will trickle over into other commodities...only time will tell! Cheers!

What was Dimon thinking hiring this guy? Gets worse and worse...unbelievable! Cheers! http://www.bloomberg.com/news/2012-05-20/jpmorgan-cio-risk-overseer-said-to-have-record-of-trading-losses.html

I saw the original version when it was published. So this corrected version says that he just has to hit the high watermark plus 6% and he gets compensated. So he could lose 5% in year 1, lose another 5% in year two, and he would just have to recover those losses plus 6% in year 3...not recover the losses, plus 6% compounded each year. If that is true, then shareholders should be asking questions...but he'll probably just tell you to sell the stock if you don't like it! I wish the compensation plan in my fund was like that! ;D Well, actually I don't, because it would simply enrich me when I don't truly deserve it. Cheers!

I would rethink that statement...not only based on your policy. How exactly will insurers achieve the 4% return on guaranteed whole life policies? Alot of Japanese insurers went bankrupt back in the 90's and early millenium after rates hit historic lows, because they could not cover their insurance liabilities. Why will we not see the same thing with insurers in the United States or Europe? Your insurance policy may only be as good as your insurer, and no different than any other financial institution when they cannot match assets and liabilities. Cheers!

I have not taken a good look at the compensation plan since he implemented it, but that is what I understand. If you exclude the mark to market accounting of BH's investments, there is really no way he can't make at least 9% annually ROE. Shareholder equity is about $300M and net income should be around $28-30M...90% coming from Steak'n Shake's consistent earnings...and net income should grow annually at 2-3% just from Steak'n Shake. So if he did nothing with the cash, he would still be making better than 6% annually ROE. Cheers!

Very good question Cardboard! To answer your question, ask yourself why my opinion would change? ;D The answer: I saw the problems with the PIIGS, and expected Portugal, Ireland & Greece. I didn't think Spain would get to the point it has...and I'm far more worried about Spain than Italy...but that could change if things degrade there with the speed they did in Spain. As soon as I recognized how big the problem was in Spain, and the scope of helping them, we started buying out of the money SPY puts...we then added the BAC puts. Not because we saw any issues with BAC or the United States, but that this was going to be a problem and we were going to see volatility probably worse than in 2011. The BAC puts are up well over 130% and the SPY puts are up about 25%...they were well out of the money. We've sold 35% of the BAC puts and none of the SPY puts. We don't work in a vacuum. I'm constantly reading and trying to put together information that I pick up. If the scenario changes where the risk/reward ratio degrades, I have to accept the new analysis and apply it to the fund...otherwise, it would be like floating in a boat that develops a hole in the hull, determined to reach your destination, and not patching the hole because you choose to ignore the new information...you may make it or you may not, but the decision to ignore could be very costly. Cheers!

Parsad, with respect, a calculation of bank assets to GDP is a novel one at best. All that matters is bank leverage ratios (Assets to equity) and then you need to simply add up the value of all the "non surviving member" sovereign debt held by the members of the "surviving eurozone". In every scenario you can assume say Spain exits, or even France, well then just look at the surviving members ie: Germany, Netherlands, Belgium, analyse those banks and on those balance sheets add up the value of the sovereign debt they hold. In the scenario I propose the ECB will simply create new money and either inject it in the form of a TARP or if there is enough equity cushion provide it against illiquid assets. Its fairly easy to ring-fence the banks belonging to the surviving euro zone with fiat money as has been proven by the americans. So, if Greece exits, and surviving nation banks have to take further write downs (which they don't currently based on my calculations) ECB would step in and create that magic number, inject it as either a discount window loan (against anything) or a TARP, if Spain or Italy left, the same would happen. Meanwhile the exiting nations would simply supplement their former currency the Euro with a new fiat currency which could be created at will to meet the nominal disequilibrium between their tax revenues and debt service... This would cause inflation of course (as I previously mentioned as the number one risk) So you see in all scenarios the Euro as we currently know it is actually worth quite more than is currently being reflected. Imagine a Euro anchored by just the top nations... The only way you lose in Europe under the scenarios I propose is if you are invested in the securities of the nations which you feel may exit the Euro, the PIIGS or what not... This is the reality we all live in now, a reality where money means nothing and where debts will be papered over to keep the system from gravitating towards its natural path of correction. Tomorrow we will all continue to contribute to the economy and engage in commerce, and both the kicked out nations and surviving nations will still consume the same amount of goods and services. If their currency does not afford them the same amount then you will see domestic companies pop up and correct the imbalance. A Parmalat for example has an advantage over a Nestle and Danone in Italy if it returns to the Lira... Bottom line: How this all affects BAC or BP or the rest of the companies in my portfolio? It doesn't.. its just providing a window of opportunity for me to buy more of these fantastic businesses at incredible valuations. Hi Moore, I don't think we disagree. You're saying that you aren't concerned about volatility because they don't affect your underlying holdings. I'm saying that I do worry about volatility, not because I'm concerned about my underlying holdings, but how that volatility may shape the decisions of my partners. We'll both be buying if markets drop. Incidentally, I think TARP is what will have to happen in Europe, but it will be complicated by the existing leverage and the exodus of possibly a couple of EU nations. Cheers!

As you mentioned since the first discount facility announced in the face of 2008, whereby the Central bank resorted to creating new fiat money and lending it out in exchange for illiquid trash securities, I believe we are in the face of a new normal whereby central banks will not allow banks to fail in the classic sense or governments to default, again in the classic sense. You are correct here, as far as the United States is concerned. What that means is that shareholders of banks will be allowed to lose their investments but you will never ever see a scenario where depositors lose money. Same with Sovereign defaults, you may see an orderly exit of a country from the Euro Zone IE: Greece/or Spain, in which case gov bonds may be devalued but in such a case central banks will step in, create new money, and inject it as new capital to the remaining banks that had to take a hit on the depreciation of the bonds from the kicked out nations. You may be very wrong here...I would say it is 50/50 at this moment. Please see the slide attached from our AGM in April. If you can find a way for the ECB to fund the losses with the amount of leverage involved in Europe, then you are a better man than me. The problem will solve itself over time, but not without considerable pain. That will affect the U.S. to a degree, but they will be better off than anyone else, as they have dealt with alot of their problems in the last three years. Like I said, I'm long on certain U.S. banks, because they will be better off than all of the banks in Europe and probably China & Japan. But Europe is going to pay a price for their excess. The ECB will survive, but almost certainly not in its present form. Cheers! MPIC_Funds_Presentation_-_2012_AGM_-_Slide_34.pdf

Maybe Buffett has more in common with Hefner than we thought. Those mid-western boys! Not sure if any of you have seen the documentary on Hefner, but it's pretty darn good. Cheers! http://omg.yahoo.com/blogs/now/inside-playboy-mansion-kitchen-230251279.html

This retard from Bloomberg compiled a list of the most likely Canadian companies to default due to Europe's problems. He screened ratios and has assembled them without actually reading any financials...a vacuous attempt at journalism! Somehow Fairfax is on the list, as is Brookfield and a number of other companies that have almost zero chance of default even if Europe imploded. Cheers! http://www.theglobeandmail.com/globe-investor/investment-ideas/number-cruncher/amid-macro-turmoil-canadian-firms-with-highest-risk-of-default/article2433712/ http://www.huffingtonpost.ca/2012/05/17/canadian-companies-risk-bankruptcy_n_1524895.html

The nice thing about the current price, and trends in collateral values, is that Moynihan doesn't have to be an amazing risk manager and revenue builder. He just has to stick to his stated principles and prioritize risk managers versus profit centers. That's part of why I admire him - focus. He's a great fit for this job, at this bank, in this environment. Yes! He would have been an odd duck six years ago when executives were going nuts. I think if anyone had doubts about Moynihan, he's acquitted himself nicely. This is a meat and potatoes guy, and what he's done so far has been extraordinary. Cheers!

I suspect most of the litigation and legacy issues will be behind them after two years. As each quarter goes by, and their Tier 1 capital ratio increases while lawsuits fall by the wayside, the market price will slowly move towards tangible book and then book. It will depend heavily on how the U.S. recovers, especially housing, because a good portion of their engine is driven by loans and credit. Cheers!

Our November $7 puts bought when BAC was just under $10 are up over 120% in a couple of months! We've sold a third. As we sell off the rest, we may get to buy more BAC at fantastic prices again. We bought the puts to protect the equity gains. Mr. Market is discounting a terrific bank executive and his reborn bank! Cheers!

Good article on Spain. Crisis = opportunity...be it here or abroad! Cheers! http://www.reuters.com/article/2012/05/17/us-spain-economy-idUSBRE84G0CK20120517?feedType=RSS&feedName=topNews&rpc=71

Article on how gold demand is down around 5% across the board this year. Cheers! http://www.cnbc.com/id/47456044

Yes Tom, I do agree. Especially if one pool of capital is permanent personal capital, and the other (in our case) is non-permanent, redeemable capital. You are willing to withstand a considerable amount of volatility, whereas I cannot guarantee that the constitution of our partners is as high on a collective basis. Thus I have to view the world through best case scenario and worst case scenario on a daily basis, and weigh that against the risk premium provided to us on investment opportunities. Cheers! Sanjeev, I think what you are doing as a manager of funds that don't have a lockup is wise. It reminds me of what Frank Martin of Martin Capital management has done very successfully to manage capital through the cycle and produce superior returns for his clients. My hat is off to you, and that opinion will not change regardless of the direction of the market in the next few months. :) Thanks Twa! Incidentally, we're pleased that both of our funds have now pulled ahead of their respective indices. It took a while to make amends with the Canadian Fund, but we are now well ahead of both comparative indices (S&P500 Cdn & TSX60). Our goal has always been, and always will be to provide above average returns with no permanent loss of capital, while giving our partners access to their money. We can sleep well at night, along with our partners, and I can't say that about many managers. Cheers!

Yes Tom, I do agree. Especially if one pool of capital is permanent personal capital, and the other (in our case) is non-permanent, redeemable capital. You are willing to withstand a considerable amount of volatility, whereas I cannot guarantee that the constitution of our partners is as high on a collective basis. Thus I have to view the world through best case scenario and worst case scenario on a daily basis, and weigh that against the risk premium provided to us on investment opportunities. Cheers!

By the way, I would recommend that you guys take a look at slide 35 from Fairfax's AGM presentation. http://www.fairfax.ca/Theme/Fairfax/files/2012%20AGM%20Slide%20Presentation_v001_f4dd72.pdf That's kind of related to the stuff we had been watching leading up to our decision to become cautious again. That unemployment rate in Europe is not at a bottom and Europe's economy overall is contracting. Not like 2009, but it is contracting. http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tsieb020 And unfortunately, the structure of the EU and the debt to GDP ratios of many sovereign nations, would make it difficult for them to stimulate their way out of this without any resulting dislocation. The U.S. is not in the same situation...they have more levers they can still pull, and they can inflate their way out of this as unsavory as that may seem. But any significant economic upheaval in Europe is going to affect everyone else to some degree. Cheers!

Thanks for the tips Moore...I will reexamine my allocation! ;D At the same time, do you think you might be less objective because my sentiment is a bit different than last year, whereas yours has remained the same? We try and stay away from forming any sort of permanent bias, other than we buy cheap and sell dear. When were we buying last year? Take a look at the chart below: http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined; When were we selling and I was warning about being defensive? Take a look at the same chart. Not hard to do the math! We aren't timing the market...we are quantifying risk and reward. We thought the world could handle Greece last year, that's why we were buying. But as the year has progressed, we think that the world would have a difficult time with Spain. We're not saying sell everything. We're saying that things could get cheaper again based on both fundamentals and difficulties deleveraging Europe. I haven't sold a single share of BAC or WFC. I haven't sold a single warrant in BAC. We still own them and we aren't selling because we think those banks are cheap and we like management. But we did sell other things that aren't as cheap and we did build up cash because things were getting more expensive. We do everything we can to protect the portfolio and cash gives us tremendous flexibility when valuations aren't quite to our liking. We're not holding cash for the long-term...only until we find more things that give us an adequate risk premium...and we think that premium will arrive via difficulties in Europe. We'll let everyone else overpay. Cheers!

I believe that you mean control. ;) Tis a shame, too. ITEX has been one of the most interesting cases ever. I would have thought that they would have won by now- it's a shame that the thing trades so little now. Kinda hard to build a position. We would have won the previous proxy fight if someone didn't change their vote on us at the last minute...no names of course. This someone threw their votes behind Dave this time...probably because we weren't on the slate! ;D Now it will all come down to a judge's decision. Not sure why ITEX's board is gambling on this? They should just make a move and come to some agreement with Dave. Crazy of them to risk it like this, but I guess they think the judge is going to vote in their favor. Cheers!

That's why I said US stock portfolio ;) Ah, sorry Max! Cheers!

Yeah, I've got to ask Mohnish about this the next time I see him. I think he realized that the smaller position sizes just weren't going to cut it. If he's gone back to the old model, I'm happy to see it, because I think a little more concentrated is better. More volatile, but he's going to get the outsized returns long-term. Although you are wrong about the 60%. It's more concentrated than before, but that total excludes his holdings in Fairfax, the Japanese basket of net-nets, and all of his cash. He's got over $550M in assets, so it's more like close to 40% actually. Cheers!

I was at the AGM and it has not been decided yet. Those are the preliminary results, and a judge has to certify whether those shares issued by ITEX in the last year can be included in the results. Only when the judge certifies the results is it over. Unfortunately, the board is extremely resistant to an independent shareholder sitting on there. There were about 60 people or so at the meeting, and about 85% were franchisees, 10% directors or employees, and 5% independent shareholders...Dave, myself and one other shareholder. The format was restricted to written questions and shareholder's were only allowed to ask a maximum of two questions. The first five questions were all aimed at Dave and written by franchisees who have been only given one side of what happened. I asked my two questions and that was it. No other questions were asked! The few franchisees that engaged me actually found what we had to say made sense...that all of this could have been resolved three years ago by expanding the board to five people, and adding the franchisee board president and an independent shareholder. Unfortunately, ITEX had no interest in doing that unless they had two candidates of their choosing on there, and they didn't want the franchisee board president on there. We sold our shares in the open market during the tender, because we thought they were paying too much to buy back shares that could have been bought for much less over the previous six months, and that the tender would be oversubscribed. We planned on buying back our shares at lower prices, but I think the environment is now too toxic for independent shareholders. Even some of the franchisees agree that the company has become stagnant and the environment toxic for shareholders and franchisees. We didn't participate in the lawsuit because we felt it wasn't in the best interest of our partners, ITEX corporation, franchisees or shareholders. Even if Dave somehow manages to win and displace Steve White, the environment will be difficult to manage because there is considerable animosity now from the franchisees. They've been told that the proxy participants have been trying to wreak havoc and take over the company. The fact that this all stemmed from the board removing the "special AGM" provision because they were entrenching themselves does not come up. That they've implemented our ideas they were totally resistant to in the beginning...dividend, share buyback plan, etc...doesn't come up, except that they somehow came up with the ideas and managed to implement them with all of this proxy distraction nonsense! Shareholders at the end of the day are the owners of the company, and the executives and board work for the shareholders. You cannot have a well-run corporation and board, when the CEO is adamantly against changing the board to give it some independence and oversight. While some collegiality is essential for a good board, you also need independent thought and discussion to give the board's decisions any true weight. ITEX's board cannot provide that when related parties sit on the audit and compensation committees! Unless the CEO changes his stance on how he treats independent shareholders, and adds an independent shareholder to the board, we will probably not be shareholders in ITEX. We like the company, we like the franchisees, but the board wants to engage independent shareholders, but doesn't want one to occupy a seat and give the company some objectivity and oversight. We had offered three years ago to work as a director and not take a cent in compensation. They said no! So three years later they have spent hundreds of thousands on legal fees and have not grown the business at all. That was money that should have been spent developing franchisees! It's quite sad actually, that stubborness has lead to this. Cheers!

That's also partly the reason we do keep more cash than virtually all other fund managers to begin with. We have no lockup and we have a fiduciary responsibility to protect our investor's capital. We like cash...there is nothing wrong with cash. We don't hold it for years, but we hold it for periods where we think the market is ignoring fundamentals or obvious macroeconomic risks. Stocks were fair value a month ago, and they are only modestly cheaper. There is one stock that we are averaging into right now, but most are not cheap enough yet to risk capital and ignore risks. We like what we own and we have significant gains in some. Things just aren't cheap enough right now if we plan on providing outsized returns relative to the index long-term. Cheers!

Not yet! You can find the occasional thing that is getting beaten up now, but people are still really only worried about Greece. Once Greece exits, it opens the door to everyone else. In the long-run, the Euro will be better for it, because they would get rid of the reckless and lazy countries. But we aren't anywhere near that yet. The other thing you guys may have noticed, is that gold is finally getting killed when people are concerned about Europe, rather than them running to it. I think Prem's call on commodities peaking last year was correct. Sometime in the next year we are going to see a mini-version of 2008/2009, and then you should jump in with both feet! Just no substantial bullets left! Europe has to now work itself through the process of deleveraging, and that will be uncomfortable. Not as bad as 2008, but it will be uncomfortable for most investors. Cheers! I thought your 50% cash level was mainly due to averaging out as your positions went up and it's not based on market level or Europe issue. It was partly that and partly concern about what we were seeing. The more the risk/reward ratio gets skewed, the more cash we are comfortable with. I'm not particularly concerned about the U.S. and I think long-term investors in the U.S. will do better than most other regions. But in the short-term there is going to be some opportunity to get better long-term returns...better than last year, and not as good as 2008/2009. I'm finally at the point where I would consider looking at Europe as well now. We've never gone outside of North America, but distressed environments breed good investments, and I'm finally slowly looking. Probably a whole lot won't happen, but it's finally piqued my interest. Cheers!